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Is Lenme a reliable platform for investors to get higher returns?
What are the potential risks involved in using Lenme as an investor?
Are there any other better alternatives?
How Lenme Works
Lenme is a peer-to-peer lending platform that was founded in 2018.
It facilitates borrowing and lending between individuals.
The majority of loans are in the range of $100 to $1,000 with a loan term shorter than 12 months.
For borrowers, it’s very easy and quick to get loans.
Lenme even allows borrowers with low credit scores to use the platform to get loans.
To request a loan, borrowers simply need to set the terms (e.g. loan amount, duration, etc). Then investors (i.e. lenders) would compete to offer you their best interest rates.
Once the lender and borrower reach a deal, borrowers could get funded as fast as the next business day.
Repayments are managed with the help of Lenme for both borrowers and lenders.
Does Lenme charge any fees?
Lenme does not charge any fees for investors to lend money.
However, Lenme does charge $3 or 1% of the loan amount (whichever is lower) as a loan origination fee, and this fee is deducted from the loan amount.
Is It Risky For Investors To Lend Money On Lenme?
To understand whether it’s risky or not to lend money on Lenme, it’s important to know how banks manage their risks.
Banks have been in the money-lending business for centuries and everyone knows banks are very profitable.
There are reasons why banks are profitable.
The most important reason is that banks don’t just lend to anyone any amount that he or she asks for.
Banks know that they only make money if the borrowers are able to repay the loan.
So, before they make a loan, they conduct diligent checks on the borrowers’ ability to repay the loan.
For example, they will check their income, credit score, financial and educational background, assets, debts and etc.
On top of that, they will also require collateral for the loan that they are making.
For example, borrowers want to borrow money to buy a house.
Banks typically only loan the borrower an amount that is around 70% of what the house is worth.
That gives banks a very big margin of safety.
Even if the borrower defaults on the loan, chances are good that banks could recoup their money by taking possession of the house and subsequently selling the house.
Now, let’s look at the potential risks of lending money on the Lenme platform.
First of all, what is the profile of the borrower on the Lenme platform?
Lenme allows anyone to borrow, regardless of their credit score.
So, it’s the investors’ sole responsibility to vet the borrower.
Lenme helps by using color labels to tell you about the borrower’s profile:
- Blue means the borrower is your friend or family
- Green means that the borrower has a strong credit profile
- Orange means that the borrower has an average credit profile
- Red means the borrower has a risky credit profile
As an investor, you would also get access to borrowers’ payment history, credit utilization, and Lenme score.
However, this is just not enough to reduce the risks because investors cannot use this information alone to accurately assess the borrower’s ability to repay the loan.
For example, you would want to find out how much the borrower makes every month, whether his/her income source is stable, how much his/her monthly expenses are, and whether he or she has other liabilities.
Without a thorough credit evaluation, it’s just too risky to lend money.
In fact, the potential high return shows exactly how risky this investment is.
Although Lenme has mentioned that it has taken two measures to mitigate late or delinquent payments (i.e. identity verification and borrower having to connect at least one bank account to their Lenme account at all times), I seriously doubt it could reduce the risks of default.
If the borrowers couldn’t repay their loan, my guess is that their connected bank account would be close to zero as well. So, automatic deduction from their bank account would probably fail.
When I did a simple search for Lenme users’ reviews on Reddit, I found this.
They complained about a very high default rate on the loans.
So, the question becomes, is it really worth taking the risks?
Below is a table that highlights the Pros and Cons of investing using Lenme.
|Easy and user-friendly interface||High default rate in P2P lending, especially when there is no collateral for the loan|
|An alternative way to invest your money||Very young company with no proven history of profitable operation|
|Potential high returns||Negative reviews from past investors|
Better Alternatives For Investors
So, are there any better alternatives to have safe yet high returns on your money?
Raisin is a financial technology company that allows people easy and quick access to competitive interest rates on products like savings accounts, money market accounts, and CDs from multiple banks and credit unions — without ever having to open or maintain multiple accounts or juggle multiple statements.
Since SaveBetter is NOT a bank, is your money really safe?
Because your money is always held by an FDIC-insured bank or NCUA-insured credit union, NOT by SaveBetter.
High-yield Savings Accounts From Banks
High-yield savings accounts are one of the safest investments that you can have if you are looking for a high-yield return.
Plus, interest is credited to your account every month.
Below is a list of banks that currently offer higher-than-national-average yields on savings accounts.
It’s very simple and fast to open a high-yield savings account. Most importantly, your money is federally insured up to $75,000.
So, there is almost close to zero risk as you can get when it comes to high-yield investments.
|Bank High-Yield Savings Accounts||%AYP|
|Western Alliance Bank||5.05%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|Greenstate Credit Union||5.01%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|First Mid Bank & Trust||4.90%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|Mission Valley Bank||4.86%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|Medallion Bank||4.82%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|Adda Bank||4.85%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
|State Exchange Bank||4.70%||Min $1 deposit, Daily Compounding, Interest credited monthly, Federally Insured, 24/7 online access|
High-yield Money Market Accounts (From Banks & Credit Unions)
High-yield money market accounts are just as safe as savings accounts because it’s federally insured.
The key difference between money market accounts and savings accounts is that money market accounts might allow you to write checks and give you debit cards.
Most money market accounts only require a minimum of $1 deposit to open.
|Money Market Accounts||%AYP|
|Atlantic Federal Credit Union||4.75%||Min $1 deposit, Federally Insured, 24/7 online access|
|Hanover Bank||4.85%||Min $1 deposit, Interest credited monthly, Federally Insured, 24/7 online access|
|America First Credit Union||4.90%||Min $1 deposit, No Fees, Interest credited monthly, Federally Insured, 24/7 online access|
|Patriot Bank||4.8%||No fees, Daily Compounding, Federally Insured, 24/7 online access|
|Great FVC Bank||4.75%||Min $1 deposit, No Fees, Interest credited monthly, Federally Insured, 24/7 online access|
|MPH Bank||4.70%||Min $1 deposit, Daily Interest Compounding, Federally Insured, 24/7 online access|